The Australian and New Zealand currencies dropped for a third straight week as Europe’s leaders disagreed about how to solve the region’s debt crisis, damping demand for higher-yielding assets.
The Aussie dipped below parity briefly with its U.S. counterpart after German Chancellor Angela Merkel rejected French calls to deploy the European Central Bank as a backstop for indebted nations. The South Pacific currencies advanced this week amid speculation ECB buying of Italian and Spanish bonds will stem surging borrowing costs in the region.
“I still see a medium-term objective for the Aussie in the 93 to 95 cents region,” said Robert Rennie, Sydney-based chief currency strategist at Westpac Banking Corp., Australia’s second-largest lender. As long as there is a “French-German debate about the role of the ECB and its balance sheet, the longer we remain very much focused on downside risk for Europe and the global economy,” he said.
The Australian dollar rose 0.4 percent to $1.0043 at 11:33 a.m. in New York after earlier falling to 99.65 U.S. cents. It was down 2.3 percent compared with Nov. 11. The Aussie strengthened 0.3 percent to 77.22 yen.
New Zealand’s currency, known as the kiwi, was little changed at 75.78 U.S. cents and fell 3.5 percent this week. It fell 0.2 percent to 58.27 yen.
The ECB bought Spanish government bonds, according to two people with knowledge of the trades, who declined to be identified because the transactions are confidential. A spokesman for the ECB in Frankfurt declined to comment.
The German chancellor said using the ECB as lender of last resort, joint euro-area bonds and a “snappy debt cut” are proposals that won’t work to fix Europe’s debt problems.
The New Zealand dollar’s 14-day relative strength index versus dollar reached 34 yesterday, almost the 30 level that signals to some traders that an asset’s price has fallen too quickly and may be set to reverse direction.